Lisbon – East Timor guerrilla chief Taur Matan Ruak said on Tuesday that Indonesia's offer of autonomy could be a basis for talks but offered no ultimate solution to the future of the disputed territory.

"I accept (autonomy) but not as a final solution," Matan Ruak said in an interview with Portuguese state radio RDP-Internacional from his mountain hideout in Timor.

The first condition for any lasting settlement was the release of the resistance movement's charismatic figurehead, Xanana Gusmao, the guerrilla chief captured and jailed in 1992. "Without the freeing of Gusmao, nothing will change. There will be no progress," Matan Ruak said.

Many international leaders, including UN Secretary-General Kofi Annan, who helped broker the "agreement to talk" between Jakarta and Lisbon, have urged Indonesia to free Gusmao as a goodwill gesture.

But Matan Ruak gave no hint that the guerrillas were ready to call a ceasefire while talks between Indonesia and Portugal went on. "We are going to continue the fight until Indonesia feels that this problem has got to be resolved," he said.

Indonesia has proposed a degree of self-rule for the mainly Roman Catholic territory of some 800,000 people. But economic and foreign policy would remain in the hands of Jakarta. Portugal has agreed to discuss the proposal but without withdrawing its backing for the resistance movement's demand a referendum be held in the territory about East Timor's future.